Explain (briefly) how this action (i.e., purchasing T-Bonds) might help the economy.

Subject: Economics / Accounting

(6 Points) Assume that the FED purchases a large amount of treasury securities through open market operations.

Will this policy cause the money supply to increase or decrease? Explain briefly (one or two sentences).
Will the increase or decrease in the money supply be greater when the reserve requirement is 8% or 12% (or does it matter)? Explain briefly (one or two sentences).
Explain (briefly) how this action (i.e., purchasing T-Bonds) might help the economy.
Explain (briefly) why this action (i.e., purchasing T-Bonds) might hurt the economy.
If the economy is currently operating at 80% of its capacity, which outcome (positive or negative) is more likely?
If the economy is currently operating at full capacity, which outcome (positive or negative) is more likely?


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